Did eBay really win its case against Craigslist?

EBay Inc. promptly declared victory on Thursday, after the Delaware Court of Chancery issued a ruling in its long-running lawsuit against Craigslist. But not everyone reads the outcome that way.

That would seem to include the judge himself, Chancellor William Chandler III, who wrote in his ruling, according to Reuters:

“More fortunate than Goliath, eBay leaves this field with only a gash across its forehead; less fortunate than David, Craigslist leaves this field with something less than total victory,” the opinion said.

Here’s the background:

EBay, the San Jose e-commerce giant, acquired a 28 percent stake in Craigslist from disgruntled shareholder Phillip Knowlton in August 2004. Almost immediately after, eBay executives began pressuring majority shareholders Craig Newmark and Jim Buckmaster to sell their shares, pushed them to squeeze more money from the site and began acquiring competing classified listings sites overseas, according to Craigslist.

After eBay unveiled a direct U.S. rival, Craigslist adopted a poison pill provision to prevent a hostile takeover, reorganized shares in a manner that effectively reduced eBay’s stake to 24 percent and staggered board elections in a manner that made it difficult for eBay to appoint a director.

The court’s decision on Thursday did invalidate Craiglist’s poison pill and upheld various minority investor rights, which is what allowed eBay to claim victory. But Judge Chandler allowed Craigslist to keep in place its staggered board of director elections.

That’s key because it effectively means eBay can’t elect a board member, unless Buckmaster or Newmark cast their own votes for such a candidate. Neither, however, could exactly be described as a fan of eBay these days.

When a full slate of board members are elected annually, an investor’s voting shares multiplies by the number of open board slots. In this case, that would allow a minority stakeholder like eBay to throw all of its shares behind its own candidate and successfully elect him or her, explained James Cox, professor of corporate and securities law at Duke Law school, in an interview with The Chronicle.

But with these staggered elections, only one director is up for election per year, effectively giving the majority stakeholders total power over director appointments. That means eBay won’t be privy to confidential information about Craigslist, or have any real say over strategic decisions, Cox said.

“The fight … is over, unless eBay can find a way to influence one of those other shareholders to change alliances, but I don’t think that’s going to happen,” he said. “They’re a minority stakeholder with no say in how things happen.”

He says the likely next move is a negotiated buyout of eBay’s shares, but since it lost on a key point of the case, it’s likely to get less for them than it might have two days ago.

EBay presented a very different take on the matter, focused on the decision regarding the poison pill.

“We are very pleased that the Court gave eBay what it sought from the lawsuit,” said Michael Jacobson, eBay general counsel. “eBay brought this suit to protect its own shareholders and preserve its valuable investment in Craigslist. The evidence presented at trial demonstrated that the actions were taken by Mr. Buckmaster and Mr. Newmark to benefit themselves at the expense of eBay, and we are gratified that the Court recognized these actions were both unfair and unlawful and rectified the situation.”

Craigslist did not respond to an inquiry from The Chronicle.

In a blog post late yesterday, Buckmaster characterized the ruling as a “split decision.”

(Judge Chandler) affirmed craigslist’s “Staggered Board Amendments,” finding they were approved “in good faith to prevent eBay, a business competitor, from having access to confidential craigslist board discussions.”

The Chancellor deferred to “the California judiciary” to decide “whether eBay’s use of craigslist’s non-public information or its competitive activity was unlawful.”

That last point refers to Craigslist’s counter suit against eBay, filed in May 2008, alleging the company misused confidential information about Craigslist to launch its competing U.S. service.

The case was stayed pending a ruling in the Delaware case. It may now move forward in San Francisco Superior Court, before Judge Richard Kramer.